When the taxpayer has not filed taxes, The IRS figures liability based on information provided by third parties, without regard for any deductions, and may issue a Notice of Deficiency (IRS Letter 3219) also known as a 90 Day Letter. Many taxpayers are surprised to learn that the proposed IRS liability can be significantly reduced by actually filing rather than consenting to the collection assessment.
Not filing your back tax returns can lead to a greater deficiency notice by having the IRS prepare a substitute tax return on your behalf, which can significantly overstate liability. In addition you may forfeit social security retirement benefits and other refunds due to you by not filing your back taxes. For taxpayers due a refund, the tax return must be filed within 3 years from the date the tax return was due to claim the refund. In contrast, the IRS has no limitations for collections on unfiled returns for back taxes.
The IRS will look more closely at the back tax returns that are being filed late because there is a presumption that records to support deductions may not all be available. In addition, there is greater emphasis on the use of estimates by accountants. Often, there is rush to file the back taxes to avoid a garnishment, seizure or lien. When mailing in tax returns late to the IRS, one should send the returns certified mail and mail only one late tax return year at a time. Make sure to allow let the IRS know that the returns are coming by phone because the late returns may take several weeks to process. For these reasons, it may make sense to have a DC Tax Attorney coordinate this late filing procedure.
Will you go to Jail for not Filing your taxes? Willful failure to file tax returns carries a fine and possible jail time if the government determines that you acted intentionally. The jail time may be greater if you are involved in a cash business like a restaurant that involves deposits of cash over $10,000. If you have received a letter from the IRS requesting tax returns, you should contact a Tax Attorney immediately! Do not attempt to speak to the IRS without consulting an attorney. There is no statute of limitations for outstanding tax returns, meaning that the IRS can assess taxes for years beyond the normal 3 year cut-off, typically where one had filed timely but made an error resulting in a collection notice.
In addition to interest charges, a failure to file penalty of a maximum of 25% of the net tax due (higher if the failure to file was fraudulent) and a failure to pay penalty may apply. Taxpayers can avoid penalties for not filing back tax returns where they can demonstrate reasonable cause (and not willful neglect) or a good faith belief that no return was due (for example, relying on the advice of third party preparer). Physical health and mental conditions of the taxpayer are a significant factor in determining whether the IRS will abate these penalties. If you are facing a severe penalty for filing your taxes late, do not consent to the penalty without consulting a DC Tax Lawyer, who may make an argument that your penalties should be waived.